The Batten Institute at the University of Virginia's Darden School of Business improves the world through entrepreneurship and innovation. The Institute's academic research center advances knowledge that addresses real-world challenges and shapes Darden's curriculum, and the Center for Entrepreneurial Leadership offers one of the world's top entrepreneurship programs. The Batten Institute was established with gifts now totaling over $100 million from U.Va. alumnus the late Frank Batten, Sr., a media pioneer, visionary, and founder of The Weather Channel. www.batteninstitute.org.

5/29/2012 @ 10:36AM2,657 views

Who Is Best Poised To Lead The Clean Energy Revolution?

Despite those who interpret the failure of Solyndra as proof that renewable energy is not a viable sector, the cleantech space is still very much alive and growing. According to the 2012 CleanTech Report, $256B was spent in 2011 on renewable energy installations. In the U.S., $6.6B was invested in cleantech ventures in 2011, up 30% from the $5.1B invested in 2010. Solar, wind, biofuels, and other renewable technologies continue to improve and in some specific applications and geographies have become cost competitive with fossil fuels even without subsidies. The price of solar photovoltaic cells has plummeted over the last 18 months.

One can argue about the merits of the U.S. government acting as venture capitalist, but Solyndra failed in large part because it was not cost competitive with other solar companies. They made a bet on a particular technology that ended up not being viable as the price of solar photovoltaic cells has come down. This is the nature of entrepreneurship and suggests a robust market. Young industries are typically characterized by shakeouts where numerous ventures enter with hopes of capturing an attractive market opportunity only to face heightened competition and a culling process where only the most viable technologies and business models survive. These dynamics are starting to play out in clean energy.

The fact remains that a huge opportunity exists for someone — an entrepreneurial venture, an established company — to innovate and scale cost-competitive clean energy. Where in the world is such a game changer likely to emerge? The Batten Institute recently released a report analyzing clean energy patents across countries of the world (see here for the briefing). Unlike most analyses that have focused on either adoption or manufacturing, we looked at the headwaters of the clean energy value chain – innovation. What we found may surprise some. Analyzing the inventor location of patents filed in the three major patent exchanges in the world, the United States, European Union, and Japan, we found that the United States is the global leader in clean energy patents filed since 1990. In 2008, the U.S. led all patent filers followed closely by Japan and with nearly double the amount of patents of the next closest country, Germany. Rounding out the top ten were France, Great Britain, South Korea, Taiwan, the Netherlands, Canada, and Italy.

Interestingly, China does not make our top ten list of innovators (global rank is #19) despite China’s lead in manufacturing renewable energy technology. A deeper look at the data reveals some interesting patterns. Since 2005, there has been a marked increase in renewable energy patents filed by Chinese inventors. In 2008, the number of Chinese clean energy patents filed globally was more than those filed by U.S. and Japanese inventors combined. However, the vast majority of those Chinese patents (98%) were filed by Chinese inventors at the Chinese patent authority and only the Chinese patent authority. This is odd. Inventors, regardless of their home location, tend to patent in the largest patent exchanges (U.S., E.U., and Japan) and in those locations that are the largest markets for their technology. There is no doubt that the Chinese government is placing a priority on innovation and, in particular, patenting technology. The question is what is the value of these patents currently being filed by Chinese inventors in China? Given continued concerns about the strength of intellectual property enforcement in China, do these patents represent significant technological breakthroughs? Will they hold up in world markets for intellectually property?

Many questions remain as the competitive dynamics of the cleantech sector unfold. Will current patterns of innovation persist? Interestingly, we observe regional specialization over the last twenty years. The microelectronic savvy economies of East Asia (Japan, South Korean, Taiwan) are leading innovation in solar photovoltaic cells. Northern Europe leads the innovation of wind technology – perhaps not surprisingly, given their long history of adopting wind. The U.S. leads biofuel innovation likely due to the U.S. abundance of agricultural resources and a history of subsidizing corn-based ethanol. Will this trend of regional specialization continue or, in a flat world, will innovative technology emerge across regions and countries?

Ultimately, the question for many policy makers is whether advantages in clean energy innovation will translate into high growth clean energy firms that create jobs. Past experience in other technology sectors would suggest that leading innovators will emerge as the dominant players within the industry. Recent innovators like Google and Facebook have grown seemingly overnight to become the dominant players in their sectors. It is unclear, however, if a similar pattern will hold in clean energy. Given the expense of scaling clean energy advancements and the presence of well established, low-cost substitutes (e.g., coal and natural gas), some have suggested that innovators, especially entrepreneurial ventures, will need to team up with large established players. Anecdotally, we are already seeing some innovative ventures being bought out by large multinational manufacturers of renewable energy technology. In this way, the clean energy space may more resemble the biotech space where biotechnology start-ups are routinely acquired by the large pharmaceuticals firms that have the distribution and sales networks necessary to bring new drugs to market at scale.

In a global economy, demand for renewable energy will likely create a portfolio of opportunities spread across the world. A feed-in-tariff encouraging solar installations in Germany may create jobs locally in Germany installing the technology but may simultaneously create jobs manufacturing the technology in China and jobs innovating solar technology in Silicon Valley cleantech startups. The question for policy makers interested in regional economic growth and job creation is what is the most valuable part of the value chain to occupy? If I were to place my bets, I would suspect that for a country to become a global leader in clean energy, they will have to be a leading innovator of the technology. China recognizes this and is placing a greater emphasis on innovation. If past is prologue, the country that leads the world in clean energy innovation will likely lead the clean energy sector world-wide.

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End all subsidies for clean energy, petroleum, coal, nuclear. and every other energy source. Get government out of the business of picking winners and losers and let the free market decide who will lead the clean energy revolution.

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